How consumers behave when prices bite

Patrick Cua —CONTRIBUTED PHOTO

Patrick Cua is the managing director for the Philippines, Vietnam and Myanmar at NIQ, the world’s leading consumer intelligence company for retailers and consumer goods manufacturers. With operations in over 100 countries, NIQ provides clients with information and insights on consumer buying behavior. In this interview, he shares their research about marketing during high-inflation times.

Question: What impact does inflation have on consumer behavior and spending patterns? How can marketers and entrepreneurs leverage this knowledge to improve their marketing and sales strategies?

Answer: At NIQ, we have been tracking the shifting consumer sentiment and outlook over the last few years. The latest findings based on the study indicate that consumers globally will prioritize grocery and household items, health and wellness, and utilities over out-of-home dining/eating, out-of-home entertainment and clothing/apparel. They plan to spend the same levels on in-home entertainment, financials services and savings/investments.

Within grocery and household items, pet care, snacking and packaged food enjoy the fastest value growth. Home care and baby care still grew but lower than overall average. Households will also prioritize fresh food and essentials.

Coming out of COVID, we introduced the New Economic Divide and segmented consumers into five groups.

• The strugglers: Those who have experienced financial insecurity during COVID-19, which continues today.

• The rebounders: Those who experienced financial insecurity during COVID-19 but are back on track today.

• The cautious: The pandemic had no impact on their financial security but they remain cautious with spending.

• The unchanged: There has been no impact on security and they continue to spend normally.

• The thrivers: They saved money during COVID-19 and feel more financially secure than prior to the onset of the pandemic.

Q: How do consumers cope in each of the five new segments?

A: Of those polled in the country, majority of Filipinos (80 percent) belong to the Strugglers and Rebounders segments which are greatly affected by high inflation.

Strugglers prioritize cash outlay and buy only as needed, regulate those that are nonessential and minimize transportation costs. They will look for brands they can afford, usually the lowest-priced brand that gives the same benefit.

Rebounders rationalize purchases and will look to save on some items. They are likely to stick to brands that offer the promise of quality and ensure they get good value for money.

The Cautious cohorts (18 percent) increase their grocery budget to accommodate all the items they normally buy. Their goal is to maintain lifestyle without breaking the bank. They will buy brands that promise the type of experience that they are looking for, and are used to.

In the last four quarters, our retail data show an increased focus on private label. There are other cohorts that prefer to look at value via bulk buying and premiumization.

Q: Which categories would be more price sensitive in a high-inflation environment?

A: Results of NIQ price elasticity studies in the Philippines suggest that shoppers are actually less reactive to price changes post-COVID, compared to prepandemic times. Grocery items continue to be considered essential. However, as consumers shift their spending and tighten their belts, it’s also important to understand the polarizing effects of inflation within consumer packaged goods categories.

Q: How should firms adjust their marketing mix, especially their pricing strategy, to account for inflation while maintaining profitability and customer retention in a high-inflation environment?

A: We recommend brands to look at their brand portfolio to ensure that they have products that are available at the different popular consumer price points within the category.

In the last four quarters, our Philippine retail sales data also show that proximity stores (sari-sari and neighborhood stores) are growing faster. Smaller store formats carry fewer items and brands need to remain available despite the channel shifts.

Q: What marketing tactics work best to attract customers in an inflationary environment, and how can firms optimize their advertising and promo spend to ensure the highest return on investment?

A: Increasingly, shoppers will make more purchase decisions in-store. Several tactics that brands should employ include (1) have visible on-pack pricing and marked savings; (2) attract and retain brand loyalty via multipack promos; and (3) excite consumers toward their brands, such as by getting them to try new flavors in bundle packs.

Q: What are the opportunities and/or challenges for brands to differentiate themselves from competitors in an inflationary environment?

A: During an inflationary event, there is a risk that categories become more homogenous as assortments are rationalized and focus is on price. Consumers continue to seek genuine connections and representation in brands. Brands should continue to invest in advertising about their key benefits to maintain their positioning and not get dragged into a pure price comparison. Brands also can spur demand through innovation. Instead of brand restage, which requires significant increase in marketing support, renovation options can be focused on defending your brand and driving relevance.

Q: What are some common mistakes that companies make when marketing during high inflation, and how can these mistakes be avoided?

A: One other observation is that brands need to manage aggressive price increases to minimize consumers shifting to other brands. It is a delicate balance between profitability and market share.

Q: What metrics should marketers track to monitor the impact of inflation on business, and how can their strategy be adjusted based on these insights?

A: During this time, marketers need to focus on the fundamentals. Monitoring market share is more important than ever. Gaining visibility on the category growth rates, and looking at the growing price points and the price indices versus your competitor set enables you to quickly adjust. Consumers will also prioritize and substitute categories. Within categories, buyer behaviors also need to be reviewed to increase penetration and minimize brand switching.

—contributed

Cua will speak at the 14th Mansmith Market Masters Conference on May 17. Registration is available at marketmastersconference.com.Josiah Go is chair and chief innovation strategist of Mansmith and Fielders Inc.